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Stainless steel segment – Positioning and Strategy
Bernard Fontana – Chief Executive OfficerJulien Onillon – Chief Financial Officer & StrategyJohanna Van Sevenant – Sustainability, Human Resources & Communication
19 November 2010
1
Forward-looking Statements
This document may contain forward-looking information and statements about ArcelorMittal and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements may be identified by the words “believe,”“expect,” “anticipate,” “target”, “will” or similar expressions. Although ArcelorMittal’s management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of ArcelorMittal’ssecurities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of ArcelorMittal, that could cause actual results and developments to differ materially and adversely from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the filings with the Luxembourg Stock Market Authority for the Financial Markets (Commission de Surveillance du Secteur Financier) and the United States Securities and Exchange Commission (the “SEC”) made or to be made by ArcelorMittal, including ArcelorMittal’s Annual Report on Form 20-F for the year ended December 31, 2009 filed with the SEC. ArcelorMittal undertakes no obligation to publicly update its forward-looking statements, whether as a result of new information, future events, or otherwise.
2
Content
• Introduction to the management team• Overview• Markets and products• Unique strengths• Challenges and opportunities in Stainless Steel Stainless • Challenges and opportunities in Electrical Steel, Alloys and specialities • Strategic orientation and actions• Sustainability and people development • Q&A
3
Introduction to the management team
4
Team and organisation
Bernard FONTANA
CEO
Julien BURDEAU
Alloys & Specialities
Jean-Paul ROUFFIAC
Paulo MAGALHAES
Timoteo DIMAULO
Services & Solutions
Johanna VAN SEVENANT
Sustainability, HR &
Communication
Stainless & Electrical steel South America
Julien ONILLON
CFO & Strategy
Stainless & Electrical steel
Europe
5
AMIB AMSE Alloys & Specialities
BioenergiaBiomass & Upstream
Strategic participation
Stainless
&
Electrical Steel
Services
&
Solutions
Industry
Tubes
Precision
Industry
DistributionDistribution
Wire drawing
Components
Industry
Tubes
New organization by core competencies
GMO
Distribution
6
Overview
7
Stainless segment Snapshot
USD760m of EBITDA average* equivalent approximately to 5% of group EBITDA*5 years average 2005-2009** ArcelorMittal Stainless steel segment proforma in 2005 and 2007
Shipments in million of tonnes**
EBITDA in million of USD**
– A global player in stainless steel
• 2.5mt of Flat stainless steel capacity in Europe and Brazil (27% of segment turnover in 2009)
– Leading position in high valued added niches, alloys and specialities• Stainless specialities (Ferritics…)• Electrical steel (GO and NGO)• Special-carbon• Nickel alloys & specialities
– A highly integrated distribution, processing and services network
– A unique capability to produce stainless and specialities from low cost Biomass/Charcoal
– An industrial network concentrated in 6 main plants located in Brazil, Belgium and France
• Approximately 9,800 employees
1.912.13
1.94 1.96
1.45
0
1
2
3
2005 2006 2007 2008 2009
523
936
1144
934
258
0
200
400
600
800
1000
1200
1400
2005 2006 2007 2008 2009% of AM 3.5% 6.1% 5.9% 3.8% 4.4%
8
A global player
FOREST
SALES AGENCIES
SERVICE CENTERS
PLANTS
North America
South America
Europe and CIS
Middle-East & Africa
Asia & Pacific
43 kT 743 kT
46 kT
41 kT
228 kT
% Stainless market share
3.6%0.5%
22%
65% 6.5%
Stainless steel shipments and market share in 2009
Source: ArcelorMittal
9
Markets and products
10
Demand for stainless steel driven by consumers and industrial investments
Stainless Steel consumption by end user*
General Industry
20%
Building & Construction
17%
Automotive & Transportation
12%
Catering & Appliance
34%
Others3%
Energy & Chemicals Industry
14%
Stainless steel represents only 2% of total world steel market in volume
Main end-user applications
*Pre-crisisSource: ArcelorMittal
11
Demand for stainless steel comes later in the economic development cycle
A stronger growth potential in stainless steel than carbon steel
Carbon Steel consumption per capita* (kg/year) Stainless Steel consumption per capita* (kg/year)
0
2
4
6
8
10
12
Emerging world China Developed world
90%
x8
0
100
200
300
400
500
Emerging world China Developed world
30%
x6
Pre-crisisSources: CRU and ArcelorMittal
12
Grain Oriented (GO)
• GO is used in the construction of static electrical machines / transformers
• Amorphous alloy is the only material that competes with GO steels (restricted to small distribution transformers for specific market segments )
Electrical steel products are driven by energy oriented applications
Non-grain Oriented (NGO)
• NGO is used in the construction of large and small rotating electrical machines (hydro-generators , electrical motors, hermetic motors / compressors for refrigerators, air conditions and freezers, drills, household appliance transformers, energy meters , ballasts ….)
• Limited substitution threat
High
Low
Low HighPo
lariz
atio
nCore Losses
High grades• Higher efficiency equipment• Lower Energy consumption
• Lower CO2 emissions
Regular grades• Low efficiency
equipment• High Energy
consumption
Best properties
Stricter governmental regulations, greater electricity demand/cost, focus on energy efficiency and environment concern drive the growth of both GO & NGO products
13
CAPEX budget of USD 4.0 billion for 2010
Nickel Alloys applications and products
High added value materials (price over 20,000 USD/t) with unique properties
Magnetic and controlled expansion alloys
• FeNi alloys (Ni>25%) and FeNiCo exhibit unique properties in terms of coefficient of thermal expansion and magnetic properties
Superalloys, corrosion alloys
• High Ni-based alloys, enrighed with Cr and additions of Co, Mo, Nb, Ti exhibit outstanding corrosion performance in various environments and mechanical properties at high temperatures
Specialty stainless grades
• Strict control of residuals
Oil & Gas Aerospace
Heat resistance Electronics
14
Unique strengths
15
Strategy to leverage and maximising unique strengths
What makes Stainless segment unique
– Leading global stainless and specialty steel producer• Leading player in stainless steel in Europe and Latam and in electrical steel and special alloys niches• Provides exposure to both high end mature markets and emerging markets growth
– Long-term growth potential of the stainless and speciality steel industry• Long-term growth trends in mature markets supported by emerging market demand
– Global, integrated distribution network and proximity to customer• Services & Solutions division provides exclusive and global distribution channel• Focus on services, partnership and customer satisfaction offers growth opportunities
– Effective working capital and risk management• Best in class working capital ratio• Active use of risk management tools to manage in particular Nickel exposure
– Leading R&D capabilities• Continuous product development and innovation (Ferritics, High-end GO/NGO, Nickel Alloys, Duplex…)• R&D activities in France and Brazil
– Continuous improvement • Continuous improvement program ensuring cost effectiveness and focus on Health & Safety
– Ability to produce stainless and speciality steel products from low-cost charcoal• Unique upstream integration into forestry asset provides cost advantage and access to sustainable energy source
– Strong financials through the cycle• Superior earning profile and lower volatility
16
Brazilian markets normalizing in 2010 and grow by more than 10% per year thereafter
Market leader in growing Brazil
Brazilian Stainless Steel demand estimates (000t)
0
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
x2
Brazilian Electrical Steel demand estimates (000t)
0
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
GO (Grain oriented) NGO (Non-Grain Oriented)
+90%78% market
share76% market
share
17
High quality and cost effective European operations
European steelmaking restructuring realised in the mid-2000’s
GenkIsbergues
ChâteletGreenfield
Genk brownfield
Black coil (HRC) European cost curve (base 100)
L’Ardoise
ClosureGreenfield/Brownfield
Upstream has been significantly upgraded proven rationalisation efforts
Competitor 1 Chatelet Competitor 2 Genk Competitor 3 Competitor 4
18
6 mains plants
A strong continuous improvement culture
Steelshop
Chatelet1.0Mt
Genk1.1Mt Clients
Isbergues0.35Mt
Genk0.60Mt
Gueugnon0.40Mt
Cold rolling
Steel Service CentersTransformationDirect sales
Service
Chatelet3.4Mt
Hot rolling
Timoteo0.90Mt
Timoteo0.88Mt
Timoteo Electrical 0.17Mt
Timoteo Stainless 0.38 Mt*
Electrical flat
Stainless flat
Steel Service CentersTransformationDirect sales
Imphy0.06 Mt Imphy (wire)
Imphy SSCs, Direct salesTransformation
Ni alloys &specialties
Chatelet (strip)
Stainless flat
* Includes 0.06Mt of finished HRAP products
19
Strong R&D capabilities catering tohigh-end application and specialities
High-end application and specialities products
Commodity and speciality price (USD/t) Sales 2009 breakdown by products
Stainless steel80%
Electrical Steel11%
Nickel Alloys & Specialities
9%
High grade GO
Base price
Stainless 430
Regular GO
Nickel alloys
Base price
Stainless 304 CR
500
0High
grade NGO
Regular NGO
1,000
1,500
2,000
2,500
3,000
17,000
Base priceSurcharge
20
Close to customer through a highly integrated distribution network
Sales subsidiaries and representative offices Steel Service CentersSales agencies
A key competitive advantage to maintain market share and capture growth opportunities
Sales, Distribution and Steel Services Centers networkStrong relationship with global and long term customers, including Whirlpool, Bosch Siemens, Indesit…
21
Equivalent Coke and Charcoal cost in 2009 (USD/t)*
280
194Brazil (charcoal)
Imported (coke)
31%
A unique capability to produce stainless and specialities from Biomass
Biomass is a strong competitive advantage offering multiple growth opportunities
– Strategic participation of 36% in Bioenergia which produce biomass (charcoal) from eucalyptus - Planting, maintenance and cutting at 7 years old
– 126,000 hectares on which Bioenergia operates 76,000 hectares
– Consummation 194,000t of biomass (charcoal) in 2009 and target to double its consumption of biomass to shift the Blast Furnace 2 from coke to biomass by 2012
– Positive impact on environment thus contributing to global warming reduction
* One tonne of charcoal is equivalent to approximately 0.90 tonne of coke
22
Strong financials through the cycle
Earnings profile is stronger and less volatile than competitors
EBIT per tonne (in USD)
*Average of Acerinox, ThyssnKrupp Stainless and Outokumpu** Average of Acerinox and Outkumpu
Operating Working Capital in % of sales
-1500
-1000
-500
0
500
1000
1500
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
European competitors* ArcelorMittal Stainless
0%
10%
20%
30%
40%
50%
60%
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
European competitors** ArcelorMittal Stainless
23
Challenges and opportunities in Stainless Steel
24
Global stainless steel demand has recovered from 2009
Stainless steel market structure (mt)
Long term growth expected to be around 8%
Global Flat Stainless Steel Demand* (mt)
-
5
10
15
20
25
30
1998 2008 2009 2014E
China
Emerging World
Developed World
25%
42%62%40%
13% 32%
26%
34%
37%
29%
37%
31%
32%
0
5
10
15
20
25
30
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
Cold rolled Hot rolled
+8% per year
Sources: CRU
25
European demand expected to come back to pre-crisis level in 2013/2014
Western Europe remains a major stainless steel consumer and technology leader, while Eastern Europe is expected to continue to expand
Eastern European HR & CR Demand (mt)
0
1,000
2,000
3,000
4,000
5,000
6,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E20
11E20
12E20
13E20
14E
Demand for stainless steel flat products in western Europe* (mt)
0
100
200
300
400
500
600
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E201
1E20
12E20
13E20
14E
6% per year
Sources: CRU
26
0
100
200
300
400
500
600
700
800
2003 2004 2005 2006 2007 2008 2009 2010E2011E2012E2013E2014E2015E
Rest of South AmericaBrazil
0
100
200
300
400
500
600
700
800
2003 2004 2005 2006 2007 2008 2009 2010E2011E2012E2013E2014E2015E
Rest of South AmericaBrazil
South American demand is growing again at a solid rate
South America presents important growth potential
Stainless steel consumption per capita in 2008 (kg/year)
0
1
2
3
4
5
6
Other SouthAmerica
India Brazil China US
Sources: CRU & ArcelorMittal estimates
Stainless steel flat products demand in South America (kt)
27
50%
55%
60%
65%
70%
75%
80%
85%
90%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Despite increased demand, structural overcapacity remains an issue
Worldwide Excess Capacity* (mt)
Industry consolidation is needed to reduce overcapacity
Global Utilization Rates* (mt)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2007 2008 2009 2010 2011 2012 2013 2014
China Rest of World
Sources: CRU
28
Challenges and opportunities in Electrical Steel, Alloys and specialities
29
Electrical steel market growth expected to come mainly from China
By 2015, 90% of new electrical steel demand is expected to come out of China, while demand in the developed world will barely return to 2008 levels
Global GO Demand (mt) Global NGO Demand (mt)
-
0.5
1.0
1.5
2.0
2.5
3.0
2004
2005
2006
2007
2008
2009
2010
E20
11E
2012
E20
13E
2014
E
Europe, Middle East & Africa Americas Asia
+10% per year
-
2
4
6
8
10
12
14
2004
2005
2006
2007
2008
2009
2010
E20
11E
2012
E20
13E
2014
E
Europe, Middle East & Africa Americas Asia
+12% per year
Source ArcelorMittal
30
Current overcapacity due to crisis expected to reduce progressively
Despite rapid capacity expansion, supply demand equilibrium in China is expected to remain tight
Global capacity and demand for GO (mt)
Source ArcelorMittal
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2008 2009 2015E
Demand
Capacity
+56%
+18%
0
2
4
6
8
10
12
14
16
2008 2009 2015E
DemandCapacity
+40%
Utilization Rates 100% 64% 84% Utilization
Rates 93% 71% 101%
Global capacity and demand for NGO (mt)
31
CAPEX budget of USD 4.0 billion for 2010
Nickel alloys markets expected to recover in line with core end-use sectors
Innovation to be key to capture alloys market growth
Ni use in Nickel Alloys
Sources: Steel Market Research Gmbh, 2009
End-use sectors: CAGR 3-4%
50
75
100
125
150
175
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CAGR +8.5%+50% by 2015
60
70
80
90
100
110
120
130
140
150
2008 2009 2010 2011 2012 2013 2014 2015
Bas
e: 2
008
= 10
0%
Powergeneration
Oil & Gas
Processindustries
Elec.Appliances
Aerospace
32
Strategic orientation and actions
33
Value creation drivers
Biomass & Upstream
Stainless & Electrical Steel
Nickel Alloys & Specialities
Services & Solutions
9 value drivers across the stainless steel divisions
Gro
wth
Effic
ienc
ySu
stai
nabi
lity
Post-crisis rebound and recovery
Emerging market Growth
Competitive and innovative products and applications
Management gains & operational excellence
Vertical integration
People development
Forest expansion and Biomass development
Environmentally friendly products and solutions
Community engagement
34
Maintaining market share through product development, improved services and integrated distribution
Capturing post-crisis rebound and recovery
Nickel Alloys & Specialties shipments (000’t)Stainless steel shipments in Europe (000’t)
20
25
30
35
40
45
2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E800
900
1000
1100
1200
1300
1400
2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
Sources: ArcelorMittal
35
Global capacity and demand for GO in South America (mt)
Global capacity and demand for NGO in South America (mt)
0.00
0.05
0.10
0.15
2008 2009 2015E0.00
0.05
0.10
0.15
0.20
0.25
0.30
2008 2009 2015E
Capturing South American growth in Electrical steel
Project under review: capacity expansion by 180,000t in high grade electrical steelSources: ArcelorMittal
36
More than USD 110 million additional sustainable management gains targeted by 2012 resulting in particular from biomass full integration and continuous improvement
Total annual management gains plan (USD million)* Sustainable management gains progress (USD million annualized)*
Management gains and operational excellence
20
30
40
50
60
70
80
90
100
2010 2011 2012 2013 2014 2015
*Total management gains are before inflation and cost increase. Sustainable management gains are after inflation and cost increase
0
50
100
150
Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
Target by end of 2009
Target by end of 2010
37
Other opportunities and potential
Asian footprint and upstream integration would require M&A
…and upstream opportunities
• Develop further Biomass/charcoal opportunities
• Strategy to actively look at upstream and mining opportunities (Cr, Ni, …) directly or in partnership
• Upstream integration aiming to secure strategic raw materials and create upstream/production synergies in particular by leveraging ArcelorMittaltechnology in Ferro-Chrome an Nickel pig iron.
Developed world
South American Brownfield Expansion
Asian opportunities
Asian…
• Consolidation and targeted opportunities in Nickel Alloys & Specialities and Services & Solutions to be explored
38
Sustainability and people development
39
Strong convictions on people and sustainability support the core values
Investing in people and sustainability for earnings growth and value creation
Sustainability
People
– Greater accountability creates surplus of motivation– Skilled and experienced workforce drives performance and results– Leadership fully engaged in performance management processes– Initiatives to anticipate and flexibilize resourcing needs
– Stainless and specialty bring environmental friendly solutions – A unique capability in sustainable biomass offering growth
opportunities– A sense of responsibility toward future generations and local
communities
40
Boosting motivation of workforce to drive future success
People Development
84%
16%
Understanding of segment/function objectives
84%
16%
Motivation to make company succeedTop Priority on
People Development
+20% target satisfaction rate to ensure attraction
and retention
49%51%
70%
30%
Segment Leadership Survey :
68% favourable
Target improvement to 75%
Action plan in place Increase deployment of Performance Management process to all exempts Reinforce commitment to all types of people development Improve Proximity between management and teams Benchmark non-financial recognition practices Adjust Compensation & Benefits policy to competitive market practices in each country
Good results in performance management and motivation to make the segement succeed
41
Environmentally friendly products and solutions
Investing along the value chain to capture sustainability opportunities
From raw materials and energy… …to products and solutions environmentally friendly
CO2 free sustainable biomass Energy efficient production processes
New products for low CO2 and energy conservation application
Recycling and durabilityLow emission supplier
CO2 potential credits
42
Q&A
